How State Plans To Stop Fraudsters From Using Insurance Brokers To Launder Dirty Cash

Insurance brokers and agents will be required to reveal the identity of policyholders and their sources of income in the latest drive to combat money laundering and flow of illicit money.

A State-backed Bill is seeking to add the brokers and the agents among entities expected to report all transactions above Sh1.1 million to the government and smaller payments that are deemed suspicious.

The move, if approved by Parliament, will see the two join sectors such as banking, stockbrokers and accountants that report large and suspicious cash transactions to the Financial Reporting Centre (FRC) — the agency established in April
2012 to identify and combat money laundering and financing of terrorism.

Insurance brokers and agents will be obligated to disclose the name, addresses, date of birth, ID number and occupation of buyers as well as date of transaction and amount involved, among others.

The proposed law comes amid fears that drug dealers, those involved in corruption and fraudsters are targeting the insurance sector through agents and brokers to clean
dirty money.

Owners of illicit cash buy insurance, especially life cover, put extra cash in them and then seek State to demand identity, pay of insurance holders refunds after cancelling the policy prematurely.

Although the buyers pay penalties to cash the insurance policies early, the resulting cheque or bank wire transfers appear to be legitimate investment proceeds, ultimately “washing” dirty money.

Regulators globally are increasingly monitoring the flow of cash within the insurance industry to capture money laundering cases.

“Provided that this applies both to insurance undertakings and to insurance intermediaries, including agents and brokers,” says the Bill introduced in Parliament by National Assembly Majority leader Amos Kimunya on entities that report to FRC.

SH27BN POLICIES

The proposed law targets agents and brokers who in 2019 controlled 85 percent or an equivalent of Sh164.8 billion in premiums with insurance firms collecting policies worth Sh27.1 billion through their networks.

This illustrates the dominance of agents and brokers in Kenya’s insurance market.

Although the law has required banks to report suspicious activity and potential money laundering for years and insurance firms from last year, brokers and agents are not covered by the regulations.

The Association of Insurance Brokers of Kenya (AIBK) says brokers, on average, have contributed 36 percent of the combined short-term and long-term premiums, with agents contributing about 49 percent while insurers collect about 16 percent.

The 191 licensed brokers collected premiums worth Sh63.7 billion in 2019 while agents processed policies of Sh101.1 billion.

Now insurance firms, their brokers and agents will be required to develop a high priority list targeting rich customers, politically exposed clients, foreigners from risky countries, and those who use trusts and nominees to buy cover.

Also targeted are businesses that operate primarily on a cash basis and unregulated companies.

They are also required to store data on customer, nature and date of transactions, type of currency, policy and claims settlement details, statements of account and business correspondence, copies of official documents of identity such as passports, identity cards for at least seven years after the end of the business relationship.

This information should be easy to retrieve.

PENSION CONTRACTS

Those labelled high-risk will be tracked if they try to change beneficiaries or make requests to pay anyone other than themselves and their families.

They will also be probed for sudden increase of premiums or sum insured, payment by wire transfers across borders, use of anonymous accounts, lump sum top-ups on pension and life insurance contracts, unusual use of policy as collateral, early surrender of the policy or change of the duration where this causes penalties or loss of tax relief.

The law also recommends tracking the lifestyle of employees who help money launderers to process their proceeds.

Some of the traits insurance firms have been warned about are tracking unexpected changes among their staff, especially when they start exhibiting lavish lifestyles or refusing to take leave and holidays.

Employees whose sales spike all of a sudden or collude with clients to use their office or home address for the dispatch of customer documentation will also attract scrutiny.

The instruction manual will require companies to investigate the nature of business a customer is doing before accepting their premiums.

If they apply for a policy on a business that is outside their patterns, or request insurance of an amount above their need or offer cash for businesses that should be settled with cheques, then the insurance company has to flag the transaction.

The push for brokers and agents to report suspect transactions comes when the State is looking to add more businesses and professions to the list of entities with reporting obligations.

Lawyers, employees of accounting firms and trusts holding assets for wealthy people will be required to report suspicious trades and transactions to the FRC once fresh changes to the law are brought to Parliament.

Trustees have been included in the list amid suspicion that Trusts are becoming the choice vehicles for laundering proceeds of crime and corruption.

Owners of accounting firms are covered in the current law, but the amendments will see their employees expected to report to the FRC.

Lawyers are targeted in property transactions, bank accounts management, company acquisitions and setting up of businesses.

They have recently emerged as a weak link in the fight against money laundering by using bank accounts for depositing client cash as a shield to reporting to the FRC.

Kenya has been fingered for illicit money entering the country from crime, drug, corruption and shady business activities, illustrated by homes in leafy suburbs and luxury cars.